Key Financial News for 2025
By: Financial Hotline
Winter 2025 (Vol. 43, No. 4)
Right now, you may be more focused on what you’ll owe (or receive as a refund) when you file your 2024 tax return in April than on tax planning for the new year. However, as you work through your annual tax filing, you should familiarize yourself with amounts that may have changed for 2025 due to inflation adjustments.
- The standard deduction for 2025 will increase to $30,000 for married filing jointly and $15,000 for single taxpayers.
- If eligible, you can contribute up to $7,000 to a traditional or Roth IRA (but only up to 100% of your earned income, if less). If you’re age 50 or older, you can make another $1,000 “catch-up” contribution. (These amounts are the same as for 2024.)
- The amount you can contribute to a 401K plan through your job is up to $23,500 to a 401(k) or 403(b) plan (up from $23,000 in 2024). Those 50 or older can add a $7,500 catch-up contribution (unchanged from 2024). New in 2025, employees ages 60 through 63 can make enhanced catch-up contributions of up to $11,250 (including the $7,500 standard catch-up contribution).
- The Social Security tax wage base rises to $176,100 (from $168,600 for 2024). You don’t owe Social Security tax on amounts earned above this threshold. (Medicare tax must be paid on all amounts earned.)
- If you took Social Security benefits before your full retirement age, your annual earnings limit in 2025 is $23,400. If you reach full retirement age in 2025, the limit on your earnings for the months before full retirement age is $62,160.
- For qualifying taxpayers who have three or more children, the 2025 maximum Earned Income Credit increases to $8,046.
- The annual gift tax exclusion is $19,000 (up from $18,000 in 2024)
- Medicare Part D policies and drug coverage in Medicare Advantage plans will lower the out of pocket spending cap for prescriptions to $2000. The cap includes deductibles, copayments and coinsurance for covered drugs.
- For taxable year 2025, the dollar limit for employee salary reductions for contributions to health flexible spending arrangements rises to $3,300. For those that allow for carry overs, the maximum carryover increases to $650.
- The foreign earned income exclusion increases to $130,000.
- Estates of those who die during 2025 will have a basic exclusion of $13,900,000.
- The adoption credit increases to $17,280.
- The IRS 2025 mileage rates for using a vehicle for business purposes increase to 70 cents per mile.
Q: Do I have to file a return in 2025?
A: Whether or not you have to file depends on your income and other factors. If you have gross income below $14,600 for single filers and $29,200 for married filing jointly, you may not be required to file a return. That number is $21,900 if you are head of household and $5 if you are married filing separately. If you were 65 or older in 2024, the threshold is $16, 550 for single and $30,750 for married filing jointly ($32,300 if both spouses are over 65). Self employed individuals must file an annual return and pay estimated tax quarterly if they had net earnings of $400 or more. If you are claimed as a dependent, other thresholds may apply. To be sure, complete the interactive tax assistant interview at www.irs.gov/help/ita do-i-need-to-file-a-tax-return
Even if you don’t have to file, you should file a tax return if you can get money back. For example, you should file if one of the following applies:
- You had income tax withheld from your pay.
- You made estimated tax payments for the year or had any of your overpayment for last year applied to this year’s estimated tax.
- You qualify for the earned income credit. See Pub. 596 for more information.
- You qualify for the additional child tax credit. See Schedule 8812 (Form 1040) for more information.
- You qualify for the refundable American opportunity credit. See Form 8863.
- You qualify for the premium tax credit. See Form 8962.
Q: Why did I receive a Form 1099-K?
A: In 2024, you may receive a Form 1099-K if you have any number of transactions that totaled $5,000 or more through payment apps such as Paypal, Venmo or other online marketplaces.
You only need to pay taxes on any profits you make. A freelancer, hobby seller, gig worker or other self-employed individual would report this income on their Schedule C (Form 1040).
If you used payment apps for sending gifts, reimbursements or selling personal items at a loss, you won’t need to report those transactions on your return. For example, if you sold used exercise equipment for $1,000 that you paid $2,500 for in the past, you don’t have any tax consequences. If you receive a 1099-K when you should not have, contact the issuer immediately and ask for a corrected Form 1099-K that shows a zero amount.
Q: Can I still use Form 1040EZ?
A: In 2018, the 1040EZ and 1040A were eliminated. For tax year 2024 you have four variations of the form 1040:
- Form 1040 is the standard form.
- Form 1040-SR simplifies tax filing requirements for those who are 65 or older.
- Form 1040-NR is the primary form used by nonresident aliens for filing a U.S. return.
- Form 1040-X is used to amend an individual’s annual tax return.
Q: When does it make sense to file Married Filing Separately?
A: While filing joint tax returns generally results in the lowest tax bill for married couples, there are some circumstances when they may pay less taxes if they file separately. For example, if one spouse has large medical expenses. Medical expenses are deductible only to the extent that they exceed 7.5% of adjusted gross income (AGI). So, if one spouse would have significantly lower AGI filing separately, it may increase the deduction. There may also be reasons filing separately is better even when the tax cost is higher, such as if one spouse has an income sensitive repayment plan for student loans or an income cap to qualify for lower insurance premiums.
But be mindful of the downsides of filing separately. Certain tax credits, for instance, are generally unavailable to separate filers, specifically for child and dependent care and education. Also, the capital loss deduction for separate filers is limited to $1,500 (as opposed to $3,000 for married couples filing jointly). It may be difficult to determine which scenario works better for both involved. While one spouse may see a big benefit, filing separately could cause the other spouse to pay significantly more which negates the difference. To get exact answers, just fill out your forms both ways and see which filing status results in the lowest overall tax.
Q: If I qualify, is it better to file Head of Household or Single?
A: Head of Household allows you to file at a lower tax rate and claim a higher standard deduction. To qualify as Head of Household, you must pay for more than half of the expenses for a qualifying household, be considered unmarried on the last day of the tax year and have a qualifying child or dependent.